FCC Opens Rulemaking Proceeding to Consider Reforming USF Contribution System

At its April Open Meeting, the Federal Communication Commission (“FCC”), in a unanimous vote, approved a Further Notice of Proposed Rulemaking (“FNPRM”) seeking Comment on reforming the Universal Service Fund contribution system in an effort to reduce disputes, simplify compliance, and promote competition.  According to the FCC:

 “The current contribution system has given rise to uncertainty, inefficiency, and market distortions.  Outdated rules and loopholes mean that services that compete directly against each other may face different treatment.  Universal service charges billed to consumers and businesses vary by company despite virtually identical service offerings, creating confusion and distorting markets.  And compliance costs have increased as companies struggle to apply old rules to new products.”

 The FNPRM seeks Comments on reforms of the USF contribution system that will seek to promote efficiency, fairness and sustainability.  The FNPRM asks:

•     What services and service providers should contribute to the fund?

•     How should contributions be assessed -- on revenues, the number of connections, by phone numbers, or a hybrid approach?

•     How to reduce the cost, promote transparency and increase clarity of the contribution system?

•     Whether consumers could benefit from increased transparency and limitations on how providers recover their USF costs?



The Notice also seeks comment on the appropriate transition periods for reforms to allow service providers and consumers to adapt.  The FNPRM seeks comments on reforming the Carrier’s Carrier Rule and wholesale verification process with one proposed solution involving the adoption of a European-style “Value-Added Tax” model.  The Commission is further investigating whether to restrict or prohibit a service provider’s ability to pass-through USF and other federal regulatory costs through line item surcharges as a means of promoting “fairness and transparency.” 



FCC Issues Enforcement Advisory on Prepaid Calling Card Advertising

On May 8, 2012, the Enforcement Bureau of the Federal Communications Commission (“FCC”) released an enforcement advisory warning consumers of “misleading practices” in prepaid calling card advertisements.  The advisory states, “Many prepaid calling card providers target vulnerable low-income, minority, or immigrant communities, falsely claiming that calling cards costing just a few dollars will give the consumer hundreds, if not thousands, of minutes of calls to family and friends across the globe.  In the last nine months, the Federal Communications Commission has taken aggressive enforcement action against some of these prepaid calling card companies, proposing $25 million in monetary forfeitures for deceptive advertising.  The FCC’s investigations found that due to undisclosed fees and ‘fine print’ consumers would get only a fraction of the advertised minutes.”

The Enforcement Bureau also issued a consumer Guide and tip sheet instructing consumers of what to look out for before purchasing a prepaid card and listing common complaints to watch out for when using a prepaid card.  Common complaints included:

•     access numbers and/or PINs that don’t work;

•     service or access numbers that are always busy;

•     card issuers that go out of business, leaving people with useless cards;

•     rates that are higher than advertised, or contain undisclosed fees;

•     imposing undisclosed “post-call” fees deducted after a call’s completion;

•     imposing undisclosed “maintenance” fees deducted after a call or at regular intervals;

•     cards that charge you even when your call does not go through;

•     poor quality connections;

•     cards that expire without the purchaser’s knowledge; and

•     per-call fees deducted from the time.



The consumer alert advised customers to first contact the card issuer if they had a complaint, and if that fails to file a complaint with the FCC.  In a separate statement, Enforcement Bureau Chief P. Michelle Ellison stated that the FCC is committed to strong enforcement action in the area of prepaid calling cards and that card providers “should re-evaluate their business and marketing practices” in order to “bring an end to predatory, prepaid calling card schemes.”



Amazon Laws Struck Down in Colorado and Illinois

Judges in Colorado and Illinois overturned the states’ Amazon laws finding that the laws violated the Commerce Clause of the US Constitution.  The Amazon laws sought to collect sales and use taxes from transactions involving out-of-state internet retailers through the presence of in-state affiliates.  The courts ruled that the affiliate nexus or Amazon laws discriminated against interstate commerce and that out-of-state Internet retailers do not have nexus or a physical presence in a state by virtue of in-state affiliates.  The Colorado law did not impose collection responsibilities on out-of-state retailers but did require such retailers to “gather, maintain, and report information, and to provide notices to their Colorado customers” and Department of Revenue, which the court in Colorado found to unduly burden interstate commerce.



Groupon Settles $8.5 Million Class Action Suit

Groupon agreed to pay $8.5 million to claimants who sued the website alleging violations of federal and state consumer protection laws.  The plaintiffs claimed that Groupon’s “daily deal” coupons contained illegal expiration dates and restrictions in violation of consumer protection laws, as well as the Credit Card Accountability Responsibility and Disclosure Act (“CARD Act”).  The CARD ACT requires gift cards with a dollar amount must be good for at least five years from the date of purchase; however, a number of Groupon vouchers would expire within 30 days.  Claimants are allowed to redeem their coupons or receive a refund from the $8.5 million settlement.  As part of its settlement, Groupon agreed to reduce the number of its “daily deal” offerings expiring within thirty days and to change its customer disclosures as to dates of expiration.



Vermont Passes Cloud Computing Tax Legislation

The Vermont legislature approved a bill imposing six percent sales and use tax on cloud computing services.  A moratorium on the tax will be imposed for 2006 through July 2013 when the tax on software used from remote locations will kick in.  Refunds will be given for any taxes paid between 2006 and June 30, 2013.  Vermont Governor Peter Shumlin has stated that he will sign the legislation even though he is in favor of banning any taxes on cloud-based services, and Shumlin said that he would attempt to convince the legislature next year to drop the tax before it goes into effect or extend the moratorium beyond the summer of 2013.  The Vermont government also approved a plan to study the impact of cloud taxation on Vermont businesses, which is due in January 2013. •



Allison D. Rule is a senior associate at Marashlian & Donahue, LLC, The CommLaw Group, a Washington, D.C.-area law firm specializing in federal and state telecom and technology matters, with a concentration in stored value/prepaid. The firm’s Law Clerk, Patrick O’Brien, assisted in the preparation of this article. Allison can be reached at adr@commlawgroup.com.



Disclaimer: This article is intended for informational purposes only and is not for the purpose of providing legal advice. You should not act upon the information in this article without seeking professional counsel.